Last reviewed 30 Sept 2026 · 10 min read
Tendering
A tender is a formal offer by a contractor to carry out the work at a quoted price. Public works are tendered competitively to get the best value and to ensure fairness and transparency. Public procurement in India follows the General Financial Rules (GFR) and the department's manual (for example the CPWD Works Manual), and today mostly through e-tendering portals (the Central Public Procurement Portal or the state portals).
Stages of the tendering process
- Approval and sanction — administrative approval and technical sanction of the estimate; availability of funds.
- Preparation of the tender documents — drawings, specifications, BOQ, conditions of contract, time of completion.
- Notice Inviting Tender (NIT) — advertised (in newspapers and on the e-portal), giving the work, estimated cost, time, eligibility, EMD, dates and the place of submission; a minimum period (15 days, longer for larger works) is allowed for submission.
- Pre-bid meeting and clarifications — questions from bidders answered by a corrigendum.
- Submission of bids — usually two-cover system: technical bid (eligibility, documents) and financial bid (rates); electronic submission with a digital signature.
- Opening and evaluation — technical bids are opened first and evaluated against the eligibility criteria; the financial bids of the qualified bidders are opened next; bids compared.
- Selection — the lowest evaluated responsive bid (L1) is normally selected; justification of rates if the bid is unusually low or high; negotiation only under the strict rules (generally with L1 only, and in special cases).
- Acceptance and award — a Letter of Acceptance (LoA) to the successful bidder, the performance security is furnished, and the agreement is signed.
- Work order and start — the date of start is issued and the time counts from the stipulated date.
Types of tendering
- Open tender — anyone eligible can bid; the widest competition.
- Limited (selective) tender — invitations are sent to a pre-approved list of contractors; used for specialised or urgent works.
- Single tender or nomination — direct award in exceptional cases (with special approval).
- Global tender — international bidders may participate for large or specialised projects.
- Two-stage (two-cover) tendering — separate technical and financial bids, as above.
- Rate contract — annual rates for repetitive items, with orders placed as required.
Pre-qualification (eligibility)
For large works, bidders are pre-qualified on:
- Experience of similar works (for example, three similar works each of 40 % of the estimated cost, or two of 60 %, or one of 80 %) in the last 5–7 years — a common pattern in the CPWD-type rules; check the tender for the exact criteria.
- Financial capacity — annual turnover (for example 30 % of the estimated cost in the best year of the last five), net worth, and working capital.
- Technical capacity — key personnel and equipment.
- Registration, statutory compliance, and no history of blacklisting or poor performance.
Earnest Money Deposit (EMD) / Bid security
The bidder gives an EMD — a security (typically 2 % of the estimated cost for public works, or as stated) in the form of a bank guarantee, demand draft, or an electronic transfer — to show seriousness and to protect the employer if the bidder withdraws or fails to sign. It is returned to the unsuccessful bidders after the award and adjusted or replaced by the performance security for the successful bidder. It is forfeited if the bidder withdraws the bid during its validity or refuses to sign the agreement.
Performance security and security deposit
- Performance security — provided by the successful bidder before the agreement (commonly 3–5 % of the contract value, in the form of a bank guarantee or other approved instrument), covering the performance of the contract.
- Security deposit / retention money — deductions from the running bills (for example 5 %) up to a limit, held until the end of the defects liability period, when it is released.
- Defects liability (maintenance) period — a stated period (commonly 12 months, or longer for special works) during which the contractor must rectify the defects.
Contents of the tender document
| Part | Content |
|---|---|
| Notice Inviting Tender (NIT) | Summary information, eligibility, dates |
| Instructions to bidders | How to bid, documents, evaluation rules, the validity period |
| Form of tender / bid | The bidder's offer |
| Conditions of contract | General conditions (GCC), special conditions (SCC): time, payment, variation, delay, termination, dispute resolution, insurance, taxes |
| Specifications | Technical specifications of the materials and workmanship |
| Drawings | Design and working drawings |
| Bill of quantities (BOQ) | Items, units, quantities |
| Forms and formats | Bank guarantee, agreement, integrity pact |
| Addenda / corrigenda | Amendments issued during the bid period |
Types of contract
| Contract | Payment basis | Suitable for |
|---|---|---|
| Item-rate (unit-price / measurement) contract | The contractor quotes a rate for each item in the BOQ; payment is by measured quantities × the accepted rate | Most works, where quantities are only estimates |
| Lump-sum contract | A fixed total price for a defined scope, regardless of quantities (with a lump-sum for change if the scope changes) | Well-defined works with complete drawings |
| Percentage-rate contract | The bidder quotes a percentage above or below the estimated (schedule) rates; the payment is by the measured quantities at the schedule rates adjusted by the percentage | Departmental works using SORs |
| Cost-plus (cost reimbursable) contract | The contractor is reimbursed the actual cost plus a fee (fixed or percentage) | Urgent or uncertain works; large risk |
| Turnkey / EPC (Engineering, Procurement, Construction) | One contractor designs and builds for a lump sum; responsible for the whole | Plants, complex or fast-track projects |
| Design–build (DB), BOT/HAM/BOOT/PPP | Contractor designs, builds and possibly finances and operates | Infrastructure projects |
| Labour (piece-work) contract | Contractor supplies only labour | Small works |
Payment
- Running account (RA) bills — periodic payment based on the measurements recorded in the Measurement Book (MB) and the accepted rates, with deductions (retention, taxes, recovery of advances).
- Advance payments — mobilisation advance, machinery advance, against bank guarantees (with interest).
- Payment on account for materials at site (a percentage of the value).
- Final bill — after completion, with the completion certificate, and the release of the retention after the defects liability period.
- Price adjustment (escalation) clause — for longer contracts.
- Liquidated damages (compensation for delay) — a stated percentage of the contract value per week of delay, up to a limit (commonly 10 %).
Variations and extra items
During the execution, the quantities or the scope change because the site conditions and the requirements differ from the tender. The contract must deal with these fairly.
- Deviation (change in quantity) — the increase or decrease of the quantity of the BOQ items. The contract rate applies to the changed quantity, up to a limit (typically ±25 % of the tendered quantity of the item and a limit on the overall contract value, e.g., ±10 % or +25 % of the contract). Beyond the limit, the rate may be renegotiated or a new rate fixed.
- Extra items — items not in the BOQ but required to complete the work: rates are derived from the schedule of rates (or, if not present, from the analysis of rates at the market rate + a fixed percentage of contractor's profit) and approved by the competent authority before the work is executed, wherever possible.
- Substituted items — a change in the specification of an item; the rate difference is paid.
- Omissions — items dropped; the contractor is compensated for the loss if the omission is large.
- Extra work orders need a written instruction or a variation order (VO) by the engineer.
Deviation statement (variation statement)
A deviation statement compares the tendered quantities with the executed (or expected) quantities item by item, and shows the cost impact and the percentage deviation of each item and the total. It is prepared when the work is nearing completion, or when the deviation is likely to exceed the permitted limits, and it is submitted to the competent authority for approval of the excess or savings, and is the basis for a revised estimate.
| Item | BOQ qty | Executed qty | Rate | BOQ amount | Executed amount | Deviation |
|---|---|---|---|---|---|---|
| Excavation (cum) | 1,000 | 1,300 | 250 | 250,000 | 325,000 | +75,000 |
| RCC M25 (cum) | 200 | 190 | 9,000 | 1,800,000 | 1,710,000 | −90,000 |
| Extra item — dewatering (lump sum) | 0 | 1 | 60,000 | 0 | 60,000 | +60,000 |
| Total | 2,050,000 | 2,095,000 | +45,000 (+2.2 %) |
Revised estimate
If the cost is likely to exceed the sanctioned estimate (beyond a permitted margin, for example 5 % for the technical sanction), the engineer prepares a revised estimate with the reasons for the increase, the updated quantities and rates, and obtains the revised sanction before the excess expenditure. A supplementary estimate is prepared for additional work during the progress, when the original estimate is not exceeded but new items have been added.
Escalation and price variation
For contracts longer than a certain period (often 18 months or more), a price variation clause adjusts the payments for changes in the cost of materials (cement, steel, bitumen), labour, fuel using indices (Wholesale Price Index or department indices), by a formula of the type:
where is the value of work done in the period, is the fixed (non-adjustable) portion, are the weights of labour, materials and fuel (), and the ratios are the indices at the current () and base () dates.
A contract of ₹ 20,00,000 has a BOQ item of brickwork: 100 cum at ₹ 6,000. The executed quantity is 120 cum (deviation +20 %, within the permitted +25 %). The contract rate applies to the whole quantity.
Payment for the item = 120 × 6,000 = ₹ 7,20,000 (instead of ₹ 6,00,000).
If the RA bill for the period totals ₹ 5,00,000 and 5 % is retained as the security deposit:
Retention = ₹ 25,000; payable (before other deductions) = ₹ 4,75,000.
If a later increase took the executed quantity to 140 cum (+40 %), the excess over the 25 % limit (15 cum) would be paid at a revised rate (often the lesser of the contract rate and the market rate, or as agreed under the contract clause).